Cleage v. Laidley

• Decision Date: 08 November 1906
• Docket Number: 2,413.
• Citation: 149 F. 346
• Parties: CLEAGE v. LAIDLEY et al.
• Court: U.S. Court of Appeals — Eighth Circuit

149 F. 346

CLEAGE v. LAIDLEY et al.

No. 2,413.

United States Court of Appeals, Eighth Circuit.

November 8, 1906

(Syllabus by the Court.)

A natural person may be adjudged an involuntary bankrupt although he is not 'engaged principally in manufacturing trading, printing, publishing or mercantile pursuits. ' The quoted clause qualifies 'any corporation' only. U.S. Comp. St. 1901, p. 3423, Sec. 4b, 30 Stat. 547, c. 541 Sec. 4b.

Contracts for the purchase and sale for future delivery of grain or other personal property are lawful and valid. But the intention of the parties to such a contract to discharge their obligations under it by the payment by one of the parties to the other of the difference between the contract price and the market price of the commodity sold, and never to make or accept any delivery, renders the agreement a wager and makes it void.

A sale of a contract for future delivery, or of rights under it, before the time of delivery, is not unlawful. An intention by the parties to such a contract to sell it, or to sell their rights under it before the day of delivery, so that they will not deliver or receive any of the contracted commodity does not make the contract a wager nor avoid it. Ponder v. Jerome Hill Cotton Co., 40 C.C.A. 416, 420, 100 F. 373, 377.

The settlement of the obligations of such contracts by set-off and by ringing off and by paying the differences according to the rules and practice of the Board of Trade of Chicago is not unlawful. The intention of the parties to such contracts to discharge their obligations under them as far as possible by set-off and by ringing off in this way, and to receive or to deliver only that portion of the contracted commodities for which they may be unable to settle in that way, is not illegal, and does not render the contracts or transactions wagers or void. Board of Trade v. Christie Grain & Stock Co., 25 Sup.Ct. 637, 198 U.S. 236, 248, 249, 49 L.Ed. 1031.

The legal presumption is that parties to contracts valid on their faces intend in good faith to perform them. One who would avoid his contracts and escape their obligations by his own wrong should establish it by clear proof. A speculator dealt in about 14,000,000 bushels of grain, and less than 2 per cent. of it was delivered. He made contracts valid on their faces for the purchase of grain for future delivery through brokers who were members, respectively, of the Board of Trade of Chicago or of the Merchants' Exchange of St. Louis and became indebted to them for balances of account. He testified that he did not intend to deliver or to receive any grain under his contracts unless forced to do so in order to prevent his contracts from being closed out under the rules of the board or the exchange. Held, this evidence did not establish an illegal intention, because it did not disclose a purpose to settle the obligations of his contracts by paying to, or receiving from, the other parties thereto the differences between the contract prices and the market prices at the times of delivery, but it was consonant with an intention to settle the obligations of his contracts as far as possible by set-off and by ringing off and by the payment of differences in accordance with the rules of the board and to deliver and receive that portion of the contracted grain for which he could not thus settle, and this was not an unlawful intention, and did not render the transactions wagers or void.

Proof that one had property of the value of only about $50 and that he owed more than $25,000 in July, and that he paid no part of this indebtedness during the succeeding four months, is sufficient evidence that he was insolvent in the following October and December. A condition of insolvency is presumed to continue as long as such conditions usually continue under similar circumstances.

Chester H. Krum, for appellant.

Richard A. Jones (Nathan Frank and David W. Voyles, on the brief), for appellees.

Before SANBORN and VAN DEVANTER, Circuit Judges, and PHILIPS, District judge.

SANBORN Circuit Judge.

T. A. Cleage, Jr., was adjudged a bankrupt upon the petitions of W. H. Laidley, Thomas E. Price, and the W. C. Lamping Grain Company, upon the ground that, while insolvent and within four months before the filing of the petition against him, he paid to the C. H. Albers Commission Company, one of his creditors, $3,000, and thereby preferred it. This adjudication is assailed because, as counsel for the defendant insists, he was a speculator in grain, and was not engaged in trading or in mercantile pursuits, because he was not indebted to any of these alleged creditors for the reason that their claims are founded upon transactions with him in the purchase and sale of grain wherein he never intended to deliver or to receive the articles which he bought or sold, but meant to settle his contracts by the payment or the receipt of the differences between the contract prices and the market prices at the times of the performance of the contracts, and because he was not insolvent when he made the payments to the Albers Commission Company. The bankruptcy law of 1898 reads:

'Any natural person, except a wage-earner or a person engaged chiefly in farming or the tillage of the soil, any unincorporated company, and any corporation engaged principally in manufacturing, trading, printing, publishing, or mercantile pursuits, owing debts to the amount of one thousand dollars or over, may be adjudged an involuntary bankrupt upon default or an impartial trial, and shall be subject to the provisions and entitled to the benefits of this act. Private bankers, but not national banks or banks incorporated under state or territorial laws, may be adjudged involuntary bankrupts.' 30 Stat. c. 541, Sec. 4b, p. 547, 3 U.S. Comp. St. 1901, p. 3423, Sec. 4b.

The clause 'engaged principally in manufacturing, trading, printing, publishing, or mercantile pursuits' is limited in its qualifying effect to the words 'any corporation.' Any unincorporated company may be adjudged an involuntary bankrupt, although it is not engaged in manufacturing or trading, and is engaged chiefly in farming or in the tillage of the soil, and any natural person who is not a wage-earner or engaged chiefly in farming or the tillage of the soil may be adjudged an involuntary bankrupt, although he is not 'engaged principally in manufacturing, trading, printing, publishing, or mercantile pursuits. ' Cleage was not a wage-earner or a person engaged chiefly in farming or the tillage of the soil, and he was therefore liable to an adjudication as an involuntary bankrupt whether or not he was principally engaged in manufacturing, trading, or any other pursuit. In re Seaboard Fire-Underwriters (D.C.) 137 F. 987, 988; In re Taylor, 42 C.C.A. 1, 3, 102 F. 728, 730; In re Lake Jackson Sugar Co. (D.C.) 129 F. 640, 642; Lovelands' Law & Proceedings in Bankruptcy, p. 142.

The creditors whose claims are challenged were brokers who bought and sold grain for future delivery for the defendant, Cleage, either on the Board of Trade of Chicago or upon the Merchants' Exchange of St. Louis, and their claims are for amounts which they paid for the defendant in excess of the amounts which they received for him in the settlement or performance of contracts which they made or assumed on his behalf, and also for expenses, commissions, and interest. There is no doubt that the defendant owes these balances unless the transactions from which they sprang were illegal and Cleage's contracts were void for the reason that he did not intend to receive the grain he purchased nor to deliver the grain he sold, but to settle his obligations by the payment of differences.

Before entering upon the discussion of this question under the evidence, we lay aside certain purchases and sales of puts and calls, privileges, or options to deliver or to take grain at specified prices which appear in some of the accounts because the master and the court below eliminated these from the claims allowed and held that such purchases and sales were wagers. The claims of the petitioners and of the Albers Commission Company which were sustained are for balances of moneys expended by the brokers above the amounts they received in the settlement or performance of contracts for the purchase and sale of grain for future delivery, which the brokers had made for the defendant by his direction upon the Board of Trade or the Merchants' Exchange. These contracts were not options, but by their terms complete agreements of both parties, of the one to buy and to take, and of the other to sell and to deliver, the commodity. The only option contained in them was that the seller had the right to select the day in the future month in which the delivery was to be made when that should be done. The transactions of the defendant with these four brokers were, in all respects material to the question to be determined, of the same character. Each of the brokers was a member either of the Chicago Board of Trade or of the Merchants' Exchange of St. Louis, and was governed by its rules which were known to the defendant. Cleage deposited with the broker a sum of money termed a 'margin' to secure the latter against any loss that might be occasioned by the fluctuations of the market price of the commodities in which the defendant dealt. Cleage directed the broker to buy or to sell grain to be delivered in some future month. The broker purchased of, or sold to, another broker as directed by Cleage upon the board or the exchange in accordance with its rules, which forbade dealing in differences on the fluctuations of the market without a bona fide purchase and sale of the article for an actual delivery. The brokers who were parties to these purchases and sales made...